Black Under Pressure Over Hollinger Governance

06 October 2003

Lord Conrad Black of Crossharbour has not only lost the chauffeured limo and household retinue thoughtfully provided by his UK subsidiary company, reports Friday's Wall Street Journal - the peer's debt-beset newspaper publishing empire Hollinger International could also be starting to slither through his grip.

Such prized media properties as Britain's Daily Telegraph, the Sunday Telegraph and The Spectator magazine; the Chicago Sun-Times in the US and the Jerusalem Post and International Jerusalem Post in Israel – all could be wrested from Black's personal control if his Nemesis-in-waiting Tweedy Browne wins the day.

The New York-headquartered investment firm, owner of an 18% stake in Hollinger is suing the company over the payment of third party monies to Black and his associates which, it contends, rightly belong to shareholders [WAMN: 02-Sep-03].

Tweedy has also forced Black to appoint a special committee of directors to investigate how Hollinger's audit committee arrived at an annual management fee of up to $38 million (€32.52m; £22.77m) paid to the chairman and his corporate cohorts through Black's privately held Ravelston Management holding company.

Also fixed in Tweedy's cross-wires is the little matter of $73 million in noncompete fees paid to the noble Lord and other executives following sales of Hollinger International assets to third parties. In addition, the Manhattan inquisitor is demanding answers to questions arising from the sale of Hollinger newspaper assets to closely held companies controlled by Black and other executives.

Tweedy co-principal Christopher Browne believes the Hollinger situation "was getting out of hand". Certain noncompete agreements, he accuses, were "just a way [for executives] to skim money off the top." In addition, Browne avers, "there was very little scrutiny" by the Hollinger board of the sale of some Hollinger assets [to Horizon Publications and Bradford Publishing – companies controlled by Hollinger officers and senior managers].

This alleged lack of scrutiny seems curious indeed, given that the Hollinger board is blessed with influential non-executive directors such as Henry Kissinger; former US assistant defense secretary and Republican eminence gris Richard Perle; plus Richard Burt, a former US ambassador to Germany. None of whom could be described as ingenuous.

Meantime the canny peer says he is in talks with bankers agog to refinance the debts of ultimate holding company Hollinger Incorporated. Black rejects the notion that the debt burden could wrest control of Hollinger International from his hands.

But Hollinger International investors appear to think otherwise. Even if Lord Black manages to hang on in there, it will be on different terms, some observers believe.

Despite its well-publicized problems and less-than-sparkling H1 results (largely due to the continuing UK ad recession) Chicago-headquartered Hollinger has seen its NYSE share price climb this year from a nadir of below $8 to its recent level of better than $12.

New York analyst Jan Loeb of Jefferies & Co believes this infers: "The [Wall] Street is feeling more comfortable that one of two scenarios could happen: the [Hollinger] assets could be sold, or Conrad could exit the company."

Data sourced from: The Wall Street Journal Online; additional content by WARC staff